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Flower-Side Chats Part 10: What’s Next for Audacious

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Aaron Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Audacious (OCTQB: AUSA) is an Aurora (TSX: ACB) spinoff formerly known as Australis Capital, Inc. They have focused on an asset-light expansion strategy whereby they leverage their expertise in designing cannabis facilities in exchange for favorable cost plus arrangements for a percentage of the facilities’ production.

We interviewed Marc Lakmaaker, SVP of Capital Markets at Audacious. Prior to joining Audacious, Marc worked with Terry Booth at Aurora. His background is in investor relations.

Aaron Green: Marc, how did you get involved in the cannabis industry?

Marc Lakmaaker: I was working for an investor relations agency. and one of my colleagues left and she had a cannabis client that I took over, which was Bedrocan, Canada. I started working with them. They were then acquired by Tweed, which became Canopy. The guy I was working with at the time at Bedrocan was Cam Battley, who then went to Aurora. As soon as he joined Aurora, he said, “I need some help.” So, I came in house and worked there until July 2019. When I left, I set up my own agency, but by that time, I’d been working with Terry Booth for a few years. Then, this past December, Terry got in touch with me and said he needed my help. It was after the concerned shareholders had won the shareholder battle around Australis and the rest is history. So, I’ve now been working with Audacious, which was Australis, since December of last year, roughly.

Green: Just quickly on Australis: So, Audacious is basically a spin off of Aurora, correct?

Lakmaaker: Correct. So, at the time, Aurora had a couple of US assets on its balance sheet, a piece of land an annuity through a company Michigan. We were listed on the TSX. We were going to list or had just listed on the NYSE and were arranging for loan facility with a syndicate of banks. They said, “even though these assets are dormant, you can’t have any US assets on your balance sheet.” So, we spun Australis off – a little bit how Canopy had spun off Canopy Rivers. But it was really the idea that Australis is going to become the foothold for Aurora in the US cannabis market because Aurora has back-in rights.

The management team was put in place and started making some investments in the cannabis space, but kind of drifted away, sort of more into FinTech. First, it was FinTech related to cannabis and then FinTech, full stop. That’s when the shareholders were like, “we don’t agree with this.” Then the proxy battle started in which the dissident shareholders, or the concerned shareholders, won overwhelmingly. The Board left. The management team left. A new management team was put in place, a new Board in place, and it was kind of a restart.

So, we feel like we’re a bit of a startup. But a very rapidly moving startup. We’ve done an incredible amount of work in just the last seven to ten months. There was a lot of housekeeping to do. A lot of stuff related to restructuring the company, dealing with the departing management teams, dealing with bringing new management, etc. There were some deals that had to be unwound… Housekeeping if you will.

Green: Australis went down the FinTech route. What are the plans for Audacious now?

Lakmaaker: We’ve already started. We pivoted right away. In early January, we announced two acquisitions. One of ALPS, and the other one of Green Therapeutics. ALPS is really what is enabling us to execute on our strategy. It’s a very different strategy. It’s an asset light model, because we figured out that in order to grow quickly in this market without spending huge amounts of shareholder money, you need to be able to get into markets in a capital-light fashion. ALPS is the world’s preeminent greenhouse design company. Not just greenhouses, but also indoor facilities. They’ve got a 35-year track record in fruits and vegetables. They’ve got an eight-year-plus track record in cannabis – and built some of the best facilities in the world. They’ve got a lot of IP.

Marc Lakmaaker, SVP of Capital Markets at Audacious (formerly Australis)

The proof point of that is our relationship with Belle Fleur. It’s a social equity license holder in Massachusetts. We helped them build their facility. We’re not contractors, but we do the design and engineering. We help them with partner selection. We do the construction management. We bring in a general contractor. Then we do the commissioning, and optionally, post-commissioning services, making sure that the facilities are dialed in. In return for all that IP, because what people know that what they get at the end of it is high quality, consistent cannabis and very low operating costs, we ask our clients to dedicate a certain percentage of their canopies to grow with our cultivars. Those we will buy back on a cost plus arrangement and we use that to launch our brands into whatever jurisdiction.

So, in Massachusetts, we’re working with Belle Fleur. We’re getting 10% of their canopy. We’re buying it back at cost plus 5%. So, we don’t have to sink money into building the facility. We’re not carrying the cost of capital there. We’re also not paying wholesale prices. And these relationships are locked in for a long time. I can’t remember if it was five or 10 years. So, it’s a very, it’s a different strategy, but it’s not contrarian – it’s very de-risked, that allows us to launch into new countries.

Then for Green Therapeutics, we’ve got a number of award-winning brands like Provisions and Tsunami. We’re kind of phasing out GT Flowers and there will be something else in its place. We also acquired Loose, which caters to a younger demographic, with a high potency shot beverage line that is now for sale in California.

We also have a partnership with PBR, the Professional Bull Riders Association. There’s some statistics around that that just absolutely blew me away – 83 million permanent fans! That’s 25% of the US population. I think the average income is $70,000. That’s well above the national average and the general split is fairly even too; it’s 53/47, male/female. Proper American sport! They have hundreds of hours of exposure on CBS. They’ve got 2 billion imprints on social media. So, with PBR, we launched Wreck Relief, which has several recognized and approved pain products in the lineup.

Green: What markets are you in right now?

Lakmaaker: Right now we’re in Nevada with cannabis products. This is our home market where our head offices are in Las Vegas. We’re in California. We just bought a dispensary in San Jose that comes with a partnership with Eaze. On top of that, we’re operationalizing in Missouri and Oklahoma, and officially building in Massachusetts.

Then through ALPS because they does both cannabis and non-cannabis, we’re in a number of states. We’re looking to get more of the supply deals. We’re also doing a lot of vegetable facilities throughout the entire world. We’re in Europe, we’re in Asia, in the Middle and in North America, we build these facilities from the desert up to the Arctic.

There’s a big movement right now to produce food that is safe and has a smaller carbon footprint. So, our facilities are kind of inherently more sustainable. They use up to 95% less water, less labor, less energy, they are less prone to disease, crop failure, everything. And because you are local producing for local communities, you reduce the transport carbon footprint.

Green: What in your personal life or in cannabis are you most interested in learning about?

Lakmaaker: I really like the sciences. I’m a chemical engineer by training. I think what is going to take an incredible flight in the years to come is the application of medical scientific research that’s being done right now. To me, that’s fascinating because the cannabis plant is something special. It’s got such a broad utility that we know, anecdotally. I think we’re moving towards a world where we’re going to see a lot of breakthroughs on the medical side.

I’m very excited about the other end too – cultivation. I think tissue culture is going to play an incredible and important role.

Green: Thanks Marc, that concludes the interview.

Lakmaaker: Cheers, Aaron.

Flower-Side Chats Part 9: A Q&A with Andrew Thut, Chief Investment Officer of 4Front Ventures

By Aaron Green
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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

4Front Ventures Corp. (CSE: FFNT) ( OTCQX: FFNTF) is a multi-state operator active in Washington, Massachusetts, Illinois, Michigan and California. Since its founding in 2011, 4Front has built a reputation for its high standards and low-cost cultivation and production methodologies earned through a track record of success in facility design, cultivation, genetics, growing processes, manufacturing, purchasing, distribution and retail. To date, 4Front has successfully brought to market more than 20 different cannabis brands and nearly 2,000 unique product lines, which are strategically distributed through its fully owned and operated Mission dispensaries and retail outlets in its core markets.

We interviewed Andrew Thut, chief investment officer of 4Front Ventures. Andrew joined 4Front in 2014 after investing in the company in 2011. Prior to 4Front, Andrew worked in investment banking and later moved on to public equity where he was a portfolio manager at BlackRock.

Aaron Green: How did you get involved in the cannabis industry?

Andrew Thut: I came at it from the investment side of things. I started my career as a junior investment banker right out of school and then I was a public equity analyst and Portfolio Manager. I ran small-cap growth portfolios for BlackRock where I was on the team for a better part of 11 years.

Andrew Thut, Chief Investment Officer of 4Front Ventures

One of my friends, Josh Rosen, who came from the finance industry, got interested in the cannabis industry really in 2008. He founded 4Front as a consulting company officially in 2011 and I came in as an investor. After that original investment, I left BlackRock and I was looking for something different to do. I was tired of chasing basis points and running public market portfolios. Josh said to me “This industry needs more talent,” and I became more and more involved at 4Front as the years went on. In 2014, I came into the business full time. Originally, I was someone that was kind of the gray hair in the room when we were applying for licenses. We had to go to different municipalities and convince them that we were going to be responsible license holders. I also spent a lot of time on the capital raising side for our business leveraging my career in corporate and more traditional public finance. These are incredibly complex businesses that require a fair amount of capital in some places. So, that’s how I originally got into the business.

These are complicated businesses in a lot of cases. The “sausage making” in cannabis is incredibly complicated. There’s friction at every step along the way. As an example, when you’re buying a building where you want to cultivate your product, you can’t get a mortgage from a typical bank.

While those of us that have been in the industry like to gripe and complain about it, this friction is also the opportunity. Because more traditional investors can’t invest in this industry yet, it allows us more time to build our businesses and have some protective moats around it from a competition standpoint until those folks do come in. So, all this friction is a pain and it’s brutal, but it’s also the opportunity here in cannabis.

Green: Can you speak to the transformation of 4Front from consulting to MSO?

Thut: The original business was consulting. Our original investor was sensitive about touching the plant – it’s one thing to offer services to a federally illegal business, it’s another thing to directly run a federally illegal business. For example, 4Front would have consulting clients that were interested in acquiring a license in Massachusetts. Because of our expertise and our standard operating procedures, we could apply for licenses in limited license states on behalf of our clients and help them show regulators competence and give the regulator’s confidence that these operators knew what they were doing. So, we would help our clients win the licenses and then once those licenses were won, our operations folks would come in and help them get up running.

When I came into the business we said, “well, geez, we have quite a track record helping clients win licenses and get open. If we’re good at winning these licenses and getting them open, why aren’t we just doing this on our own behalf?” So, in 2015, we shifted the business from consulting to being a multi-state operator. We leveraged our capabilities in regulatory compliance and winning licenses to go and get those on our own behalf. We also leveraged our financial expertise in M&A to add to our portfolio, so what we ended up with was a seven-state portfolio at the time.

Green: Chief Investment Officer is an uncommon title, even in the MSO space. What does your day-to-day look like?

Thut: I spend an awful lot of time helping management plot our strategy, and then figuring out how we are going to pay for our growth. Not only structuring finances for the company, but also having contact with our existing and new investors.

I spend a lot of my day to day thinking about where we want to be as a business and what geographies we want to be in. If you look at cannabis longer term, we have less interest in being cultivators or farmers. We think that’s going to be the most quickly commoditized piece of the value chain. We like retail as a business, but I think that we have less interest in managing hundreds of retail locations scattered across the country. We ultimately want to be a finished goods manufacturer. What we think is going to matter longer term is establishing low-cost production.

There is a lot of price elasticity in the end markets for cannabis meaning if you get customers a quality product at a much better price than the competitor, you’re going to take outsize market share. To offer that lower price, you have to be efficient. Over the years, we have figured out how to bring the labor cost out of our production. We have 25 different brands with 1000s of different SKUs of products that have dominant market share in states like Washington. And we’re now putting them into Illinois, Massachusetts, California, Michigan, and hopefully New Jersey.

Green: Do you have a preference towards acquisition, or do you seek growth through internal investments?

Thut: We are always weighing build versus buy. We want our products to have dominant market share, or very strong market share in every state we are in, and we have a lens towards what gets us there faster and most efficiently. For instance, we have two cultivation facilities and one production facility here in Massachusetts – about 15,000 square feet of canopy in the state. That will just about serve our three retail locations in Massachusetts.

Back to our bigger investment thesis, we believe that we should be a finished goods wholesaler in every state that we’re in. We know our products are incredibly well received and we know that consumers love our price point. In Massachusetts, for instance, we’re currently evaluating if we need more capacity from a cultivation standpoint and a production standpoint. And if we do where do the lines cross in terms of whether we should build versus buy that additional capacity?

We are currently in five states, including our facility in Washington has dominant market share in one of the toughest markets in the world for cannabis – somewhere close to 9% market share in Washington. Our brands are in the top 10 of every single category from flower to vapes, to edibles everything across the board. And what we’re doing our strategy is simple. It’s taking those tried-and-true products and operating procedures that have been so effective in Washington, and we’re replicating them in other states where we have licenses: Massachusetts, Illinois, and Michigan, California and hopefully New Jersey. We’re looking for more state, but we want to be deep in the states we’re in.

We also have a lot of confidence that you know, having been having translated some of these, having been able to effectively take our Washington success story and port it to other states. We’re looking for other states to sort of bring into the portfolio because we feel like we’re in a position now to stamp it out.

At our facility in Washington, which is the number one edibles manufacturer in that state, we produce the edible Marmas which is our the number one selling gummy in Washington. We produce 3,500 boxes of those in one shift using 25 people in Washington. Our facility is one of the lowest cost producers in the country.

We are opening what we think is going to be a very disruptive facility in Southern California right now. The facility is 170,000 square feet of purely automated finished goods production. So, rather than making 3,500 boxes of our gummy squares in one shift using 25 people, with the automation that we have in California, we can make 30,000 boxes. So, 10x one shift for the same number of people. We look more like the Mars Candy Company than most investors would think of when they see a typical cannabis company. We’re bringing that kind of scale and automation.

Green: What are some of the industry trends that you’re watching closely?

Thut: We keep a close eye on limited license states. States like Massachusetts and Illinois. For various reasons Massachusetts is very tough to get zoned. So, there’s going to be a limited number of players in a state like Massachusetts, which means you can have pretty good moats around your business and pricing will hold up over several years. We love limited license states like that, where price is going to hold up. On the other hand, we’re not afraid to enter a state like California where we think our low-cost production expertise uniquely qualifies us to go into a huge market like that and be disruptive and take a lot of the pie.

“You’re starting to see the market expand. There’s some anecdotal evidence that we’re taking a fair amount of share from the beer industry.”What we’re seeing in terms of industry trends, particularly on the THC side of this business, has just been phenomenally strong. You’ve had robust medical markets where, by and large, we’re seeing those dominoes start to fall quickly and going recreational. When that happens, the size of the market increases – call it from 2% of the population to as much as 10% of the population. So, from a state regulatory standpoint, having states go form medical to adult use is a huge deal in terms of the market opportunity.

We’re also seeing states get a lot more comfortable with the idea of selling cannabis. I’ve been around for close to seven years in this industry. When I started and I went into a municipality, and I said we wanted to open a cannabis store you’d have people following me to my car with pitchforks. As these municipalities open and public acceptance comes around, people are realizing that these stores are providing jobs and providing a good tax base for communities. So, the acceptance of cannabis has a snowballing effect that just continues to roll.

It’s not just the ultra-frequent users of cannabis who are totally driving the bus in terms of the demand growth for your business. You’re starting to see the market expand. There’s some anecdotal evidence that we’re taking a fair amount of share from the beer industry. So, the fundamentals of this industry are phenomenal. I think that we’re probably in the second inning of what is a mega-trend of legalization of cannabis and the investment opportunity here.

Green: I think one of the interesting things about the fundamentals is you’ve got this hardship of 280E, that all the companies are facing, and yet you still have groups that are surviving, profitable and growing. What are your thoughts on 280E’s effect on cannabis businesses? Do you foresee anything happening there?

Thut: There was a huge liquidity crunch in cannabis in 2019, meaning it was hard for people to come up with capital to grow their businesses. You had a bunch of companies that had licenses who didn’t really know how to operate and weren’t really focused on profitability. That liquidity crunch of 2019 made people get religious about being profitable and being efficient with capital allocation. Fast forward to 2021 and if you look at the top 10 cannabis MSOs in the US, I think we’re all profitable.

So, here you have an industry with accelerating top line growth and they’re already profitable. That profitability should only improve as you’re able to leverage your operating expenses and that’s a unique thing. When the internet craze was started in 1999 you had companies that a weren’t profitable, didn’t have business models, and no one really knew what they wanted to be. You have companies here in cannabis that are growing the top line 50% a year, and they’re profitable, and they’re trading at under 10 times EBITDA, which is totally disjointed.

Sen. Schumer unveiling the Cannabis Administration and Opportunity Act

So, that leads me to your question on to 280E. 280E has been a problem. Banking has been a problem. Having to list our companies over the counter instead of on exchanges like the NASDAQ and NYSE – that’s been a problem in terms of attracting capital. But the good news is Senator Schumer, Senator Booker and others have put out some bold initiatives on what they want to achieve from a legalization standpoint. From an investment standpoint, the biggest thing that investors should be focused on is access to banking, which is included in the senators’ proposed legislation.

Once we get access to banking services, the federal government is basically acknowledging cannabis as an industry will be able to not only have more traditional financing for our growth, but it will also lead to uplift into exchanges and real institutions like the Fidelity’s and the BlackRock’s of the world being able to come and invest in these companies. It also acknowledges 280E is an antiquated law. Getting rid of 280E will give us a much lower tax rate and will allow us to have a bigger proportion of our pretax cash flow into growing our businesses rather than having to go outside for that funding. My crystal ball is probably no better or worse than others in the industry, but if you fast forward 18 months to two years, I have a tough time seeing 280E still in place.

Green: Last question here. What’s the thing you’re most interested in learning about in the cannabis industry?

Thut: I’m just fascinated to see how these various business models will play out. People are placing bets on picks and shovels. People are placing bets on whether being a finished goods manufacturer works. People are placing bets on whether a retailer business model is going to win the day.

If you look at the leadership in the cannabis industry today, it’s totally different than it was four years ago. People that were foregone winners four years ago like MedMen had to do significant recaps. I put Acreage in that sort of bucket too. The leadership had shifted and so I’m really curious to see just from an intellectual standpoint, how this business evolves.

I sometimes scratch my head, you know, do you really want to be a cannabis company with 200 retail locations? You’re going to have a tough time growing same store sales in three to five years in 200 retail locations. So, I’m just most curious in proving out our thesis of being finished goods producers and low cost finished goods producers in the value chain. I’m most curious in seeing how that plays out. I think we are seeing our strategy play out in the most competitive markets in the world. We have a high degree of conviction that we’re on the right track here, but our eyes are always open and we’re always making little pivots here and there trying to make sure to stay on top of the sweet spot in the value curve.

If you describe the cannabis industry generically and you didn’t say cannabis, you said “widget” I think it’s the most fascinating Business School case ever presented. If you’re taking this market that already exists, it’s just illegal. So, all it needs to do is switch from the black market to the legal market and then you’re always trying to plot a course and steer the ship towards where the highest value creation can be. So, I’m fascinated to see how it’s going play out here.

Green: That concludes the interview. Thanks Andrew!

Thut: Thanks Aaron.

Flower-Side Chats Part 6: A Q&A with Fabian Monaco, CEO of Gage Cannabis

By Aaron Green
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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

The Michigan cannabis market is making pace with big time cannabis players like California (#1) and Colorado (#2). For the first quarter of 2021, combined cannabis sales in Michigan were nearly $360 million. At that pace, Michigan could see combined sales of $1.4 billion — well outpacing 2020 sales of $984 million.

Gage is the exclusive cultivator and retailer of world-leading cannabis brands including Cookies, Lemonnade, Runtz, Grandiflora, SLANG Worldwide, OG Raskal, and its own proprietary Gage brand portfolio in Michigan. The company recently secured a $50M investment in an oversubscribed round which included a $20M investment from JW Asset Management.

We spoke with Fabian Monaco, CEO of Gage Cannabis. Fabian started Gage in 2017 after meeting his operating partners in Michigan. Prior to Gage, Fabian worked as an investment banker racking up a number of firsts in cannabis industry financing and M&A transactions.

Aaron Green: Tell me how you got involved in the cannabis industry.

Fabian Monaco: My background is in investment banking – specifically 10 years of capital market experience. I was fortunate enough to be part of the initial team that brought Tweed, now Canopy Growth public. In fact, I worked on a lot of firsts in the industry: the first acquisition, the first $100 million financing, the first IPO in the space. Shortly after that, I went to XIB Financial, which co-founded Canopy Rivers with Canopy Growth. I was working on that when I encountered these two phenomenal operators. At the time, I had visited over 100 of these cultivation facilities and these were some of the best operators in the business. So that led me to start Gage in 2017.

Green: Where is Gage currently operating?

Fabian Monaco, CEO of Gage Cannabis

Monaco: In the U.S., we are purely operating in Michigan. We do have a licensing agreement with a small producer in Canada, so you will see the brand there.

Green: Tell me about your choice to settle the company in Michigan initially?

Monaco: If you look at Michigan as a historical cannabis market, it was the second largest cannabis market from a medical card holder standpoint for nearly a decade, only behind California. This was probably the case until 2019, where they went to adult use. So, for us, we knew this medical base was going to be a great platform to an outsized adult-use market. And already we see that April was $154 million in sales, adding up to over a $1.8 billion dollar run rate. That’s the third highest run rate in the country, only behind California and Colorado.

Green: What is it that makes Michigan different? You talked about medical cannabis already. Is there anything else about the demographics in Michigan or the consumer base that makes Michigan special in that sense?

Monaco: In Michigan, over 70% of the population is old enough to consume. So, when you take a look at how much of the population is 21-years-old plus, relative to other markets, the total addressable market in Michigan is just huge. Then when you take a look at their consumption habits, especially when it comes to flower, Michigan is consuming some of the highest amounts on a per capita basis. Those two stats set up a scenario where we foresaw the potential of the market. To be honest, the market has exceeded our expectations. We didn’t think it would be this strong this quickly. Right now, the state is looking to be a $3 billion market by 2024 – and it could easily surpass that.

Green: Any plans for expansion beyond Michigan?

Monaco: We’ve been to eight or so different states in the past 60 or 75 days really trying to educate ourselves on the licensing structure, the markets there and the key players in those respective markets. What are some of the costs, in terms of acquisitions? We really want to branch out the Gage brand into other states across the US. The thing is, we believe in the model that Trulieve deployed. They really focus on being the number one player in a very, very big market. For instance, Trulieve is obviously one of the top players in Florida. We’re trying to mimic that strategy.

Trulieve is a dominant market force in Florida

Once we have that deep market penetration, that market share, then we’ll start to get into other states. But for now, why would you want to go and rush out to another state when you’re already in the third largest market in the country?

Green: Are there any criteria you look for in a potential expansion state?

Monaco: We look at consumption habits. We want states with similar demographics to Michigan. Close proximity states also allows us to quickly go from one state to the other without having to take a multi-hour flight to get there. States we’re considering are Northeast and Midwest states, like Illinois, Pennsylvania, Ohio, New Jersey, Massachusetts and Maryland.

Green: What kind of consumer trends are you seeing in Michigan as it relates to products?

Monaco: Flower continues to dominate. In a market like Michigan, we have some of the top flower consumers in the country on a per capita basis. We specialize in flower and flower only, so this created a perfect scenario where we are able to ramp up our brand quite quickly, from a flower standpoint.

Now that we have that brand equity, that brand power, we are going to potentially delve into other categories, including extract-based products, such as vape carts and concentrates. You hear talk about these new beverages, but we’re not seeing that take off in this market as much as people think it would. Flower still remains at the top and that’s something we highly anticipate going after for quite some time.

Green: Can you tell me about your vertical integration strategy?

Monaco: We’re one of the larger retail portfolios in Michigan right now. We have 13 locations. Nine are operational. So, we’re really in a great spot overall in terms of how big of a platform we do have – one of the larger ones – and, frankly, in one of the larger markets in the country.

The Cookies flagship dispensary in Detroit, Michigan

We actually have a little bit of a unique scenario on the cultivation side of things. We have our own three cultivation assets that are going to be producing, on average, about 1,000 pounds of product over the next couple of months as they fully ramp up. We’ve actually contracted out a lot of our cultivation. Cultivation is time consuming, and it’s also very, very costly to build out. Luckily for us, we’re a really well-established and strong brand. We had the opportunity to contract out our growing. So, we have 10 different contract growth partners. These are phenomenal cultivators, again, some of the best in the state. They grow Gage and Cookies branded product for us. We have a great breakdown from a financial standpoint. We share the retail revenue with them on a 50/50 basis. They pay a little bit too, for packaging and testing. So, basically for $0 we’re getting product on the shelf where we’re achieving 50% plus gross margins. It’s a phenomenal setup for us on the cultivation side where we went from two cultivation assets in the latter half of last year to now eight different cultivation assets, moving to 13 by the end of the year.

On the processing side, we’re just actually finishing our processing lab. We should have extract-based products launched in Q3. We’re really excited to have our own line of extract-based products. We plan to focus on vape carts to start – a very popular category in Michigan on the retail side of things.

Green: Are those cultivations all indoor?

Monaco: Yes, we’re big proponents of indoor flower. It allows us to control the quality of our flavors and consistency in our strains when we grow indoors. From our consumers, there is a very strong demand for indoor grown high-premium, high-quality products.

Green: What sets Gage apart from other competitors in Michigan?

Monaco: I think focus. We just focused on our flower. We focus on our post-production process. We hang dry everything, we hand trim everything, and we hand package everything. That’s a little bit more time consuming. It’s a little more costly. But all that effort shows in the end product which is key.

A lot of people think you can grow great quality product, you cut it down, you dry it and put it in the pack and it’s going to be great. You really need a strong attention to detail, especially in a big consuming market like Michigan, because again, they are a refined consumer. They’re looking for the best. They’ve already been consuming some of the best quality products in the country for many years now. So for us, we put a painstaking process in place for flower production, not only from the growing standpoint, but also through the end of that post production process.

Ancillary to our cultivation process is also consistently providing new varieties of flavors on the flower side of things to the consumers. When you look at the successful brands in California, what makes them special is that they’re consistently pheno hunting, coming out with new flavors. This is similar to the wine industry where the best wineries come out with a new kind of grape or mix and consumers get excited, they rush out and buy half a dozen bottles or a dozen bottles.

It’s a very similar scenario in the cannabis industry. I hate when people say that cannabis is a commoditized industry. It’s so far from the truth. You look at brands like us or Cookies, Jungle Boyz and you can see their constant innovation, their constant drive. They are always bringing something new for the consumers to try. That’s what really sets apart the best brands.

Green: What’s got your attention in the cannabis industry? What are you interested in learning more about?

Monaco: I’m always intrigued with new ways of consuming. Across the U.S. and well-developed markets like California and Colorado, you see all these interesting new ways to consume the product. You’ve got patches, sublingual strips, etc. There are so many unique ways. I am currently seeing how they play out. Are they fads? Do people get excited about them initially, and then go back to their vape carts, pens and typically dried flower pre-rolls? I’m always trying to educate myself to see what’s on the market. What’s new? Who has a new drink? How does it hit? Are people excited about it?

Also, I am constantly learning about new brands that come out. There are so many new small brands that don’t necessarily have the scale or the capital to really expand, but are producing some of the best products in the country in a cool, unique form of packaging, etc..

Green: Alright, great. That concludes the interview!

Monaco: Thanks, Aaron.

Flower-Side Chats Part 4: A Q&A with Adrian Sedlin, CEO & Founder of Canndescent

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Canndescent is a vertically integrated flower brand based out of Santa Barbara, CA with grow operations in Desert Hot Springs. Having opened the first municipally-permitted cultivation in California, Canndescent has pioneered luxury branding in the cannabis space with a focus on user friendliness. They were the first cultivator to market cannabis using effects like Calm, Cruise Create, Connect, and Charge rather than the strain name. Canndescent also recently launched a social equity brand, Justice Joints, with 100% of all profits going to cannabis-related expungement and re-entry programs.

We spoke with Adrian Sedlin, CEO and founder of Canndescent to learn more about his transition from tech to cannabis, how he thinks about product positioning and the company’s motivation for getting into Justice Joints. Adrian founded Canndescent in 2015 after being approached by his brother-in-law who ran a legacy cultivation operation. Prior to Canndescent, Adrian was an entrepreneur and worked in startup turnarounds.

Aaron Green: How did you get involved in the cannabis industry?

Adrian Sedlin: I started looking at the industry from a professional perspective in 2015, and once I came to understand how cannabis affects the endocannabinoid system, I became absolutely fascinated by the opportunity to build a world class cannabis company that prioritized consumers. Particularly, I became interested in the adult-use market because I see cannabis as an automobile compared to the horse and buggy of alcohol. Cannabis is a superior adult use solution from a health and society perspective, yet, the entire positioning of the industry at the time was sub-prime, non-aspirational and inaccessible. With Canndescent, the core idea was to counterprogram the existing paradigm and deliver cannabis in a way that was beautiful. To bring the power of the plant to more people, we had to reposition the category and simplify the shopping experience. Moreover, there were too many unsolved consumer problems. For example, in 2015 people said cannabis was a commodity but any stoner knows there are as many dimensions to consider as there are with wine. The opportunity to deliver consumer solutions in a nascent industry that desperately needed advocates while helping to improve the world was enough to get me out of retirement.

Green: Just curious, what was your background prior to cannabis?

Adrian Sedlin, CEO and founder of Canndescent

Sedlin: I’m a lifelong entrepreneur. I started my first company when I was still in college. After graduation, I ran that business for another four and a half years, sold it, and went back to business school and got my MBA. After Harvard, most of my career was spent in early-stage growth companies, turnarounds and pivots. When someone had $10 million invested in an enterprise or their company wasn’t growing at the rate they wanted, that’s when my phone would ring.

I was lucky enough to shepherd a number of companies to a successful exit several times. During my professional journey, I’d taken a year and a half off between 2004 and 2006, and then pre-cannabis in 2015 I had taken three years off and was getting a little itchy. I didn’t think I was permanently retired; I was just sort of waiting for the next thing to get excited about. And cannabis definitely was the first time I can say in my life that I finally understood what I was put on planet earth to do.

Green: I understand that Canndescent was the first municipally permitted cultivator to open in California?

Sedlin: Desert Hot Springs was the first city to legalize cultivation, and we were the first ones to operate in the city.

Green: How did that come about?

Sedlin: The city had conditional use permits, but a lot of people were trying to do ground up builds. We decided to do a retrofit of an existing facility. So, we were the first ones to get the regulatory permit and cultivate in a way that was truly compliant with MCRSRA which eventually became MAUCRSA.

It took lots of tolerance for ambiguity and incredible patience. There’s an off-putting expression that goes, “pioneers take the arrows.” Well, we took a lot of arrows along the way. A perfect example is within our first year of operation, the fire department sent us five cease-and-desist orders to turn off our CO2. Not because we were doing anything wrong, but because they changed their regulations and then they wanted us to immediately comply as opposed to giving us a transition period. You just got to learn to roll with it. I’d say anyone who got into the regulated cannabis market early – and there’s a bunch of us who are still standing – you just learn to roll with it, be patient and yet, apply boundless energy and passion to the process.

Green: Did you know you wanted to be in Desert Hot Springs? Or did it just turn out to be the permit that was the easiest to get?

Sedlin: That was a binary choice for us. The simple choice for Desert Hot Springs was that it was the only choice. We were doing a professional execution. We were taking investment dollars, and I couldn’t have any ambiguity of being in the gray market. This was before adult use legislation passed in California, so we were functioning under California’s Medical Cannabis Regulation and Safety Act (MCRSA). The only way to be compliant with MCRSA at the time and be a medical cannabis cultivator was to get city-based permission or county-based permission, and the first region to authorize that was Desert Hot Springs. From our team’s perspective, wanting to build a truly compliant company from day one, that was the only choice available.

Green: I understand your facilities are powered by solar?

Sedlin: We have several facilities. One of them is a greenhouse that has light supplementation. We have an indoor facility that is powered by solar. When we opened the facility, it didn’t have a solar project on it. After we opened it, about a year and a half later, we did this full solar retrofit. We found the solar panels offset 38% of our energy consumption.

Green: Your product marketing is effect-forward. How did you come to that positioning for the brand and for the products?

Sedlin: The idea is to simplify life for consumers and unburden them from having to understand the 6,000 different strain names that are out there which have no consistency from cultivator to cultivator.  Before Apple popularized the graphical user interface for computers, the standing orthodoxy among engineers at the time was that everyone should have to learn how to code. Everyone who wanted to use a computer needed to go through the mind-numbing MS-DOS process. But computers didn’t scale that way. Apple’s genius is that it built technology to serve humans with a GUI and didn’t put humans in service of the technology. Similarly, you shouldn’t have to learn 6,000 strains, 100+ terpenes and 100+ cannabinoids to make your first purchase. Our goal has always been to put cannabis in service of consumers as opposed to having the consumer in service of cannabis.

To be clear, Apple doesn’t dumb things down. Apple makes things easier, so that more people adopt them, so those things can then get better. And, that’s really how we’ve always viewed it. At the end of the day, I’m not sure if a consumer needs to know that he or she loves AK-47 when one can understand loosely, “How do I want to feel? Am I trying to relax? What am I trying to achieve?” It’s about prioritizing the consumer over the engineer, or in this case the cultivator or breeder, who covets naming rights. We operate with a consumer-centric philosophy and our company is in service of the consumer.

Green: You have a social equity brand called Justice Joints. What was your motivation for that line?

Sedlin: We have the luxury and privilege of participating in a legal cannabis industry, but there are many people who were never afforded that choice and suffered a steep cost.  With this in mind, we need to put our dollars and sweat into helping communities most impacted and marginalized by the war or drugs and doing our part to address some of the damage.  Justice Joints (JJ), our brand where 100% of the profits go to cannabis-related social equity and expungement programs invites the cannabis community, dispensaries and consumers to vote with their dollars for a better world. “Here’s a vehicle where 100% of the profit goes to cannabis related social justice causes. Are you in? Or are you out?” It gives consumers a platform where they can participate in positive change with their dollars.  It’s what the plant is about.

JJ was the right answer for Canndescent because we wanted to build a self-sustaining economic engine for social justice. We launch world class cannabis brands so building one for social justice was the right choice for us and provided a way for all 250 of our employees to give back and feel proud each and every day.  Justice Joints isn’t a side project; it’s hardwired into the daily activities of Canndescent and will hopefully evolve into an industry-wide, give back platform.

Green: What’s one thing in the world that you want to change or inspires you the most?

Sedlin: The thing I’m most interested in professionally is popularizing the practice of gratitude into the broader business and social fabric. Canndescent is the first company that I know of to incorporate gratitude as a core value. We do so because we believe that happiness is a mindset and a choice, not an outcome. It’s not how many likes you get on your social media, or how much money you make. It’s how you frame your experience to yourself that makes you happy.

On any given day, there’s 100 things I can bitch about, but that just becomes poison ivy that itches and that would make me angry, frustrated and depleted. Living and acting in gratitude, we can move our minds to a peaceful and productive place where we have control and can be our best self for those around us. For example, I just lost my dad on Thursday but I’m focused on gratitude not sorrow. My dad was awesome, died peacefully at age 89, had a 60-year marriage, and loved and gave love. Naturally, there is sadness, but instead of sinking into that, I focus on the blessing of him and meditate on the good. Operating from a happy place, I’m freed up mentally to be there for my mom, sister, wife, children, employees and investors.

So that’s what I’m passionate about. It’s not so much something I want to learn about as much as it is something that I want to cultivate in the world. There would just be more happiness in the world if humanity exercised the muscle of perspective–gratitude. It’s the greatest time in human history to be alive. To listen to the world around us, it’s natural to forget that. But, I’ll take Covid-19 over the Black Plague and Spanish Influenza anyday. “Yes, shit happens, but are you a shit talker and complainer, or are you the type to say, let’s clean this up.” It’s a choice. Canndescent wants to project light and build a world of gratitude.

Green: That concludes the interview, thanks Adrian!

Flower-Side Chats Part 2: A Q&A with Bill Conkling, Founder and CEO of Maggie’s Farm

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Maggie’s Farm is an integrated cannabis company based in Southern Colorado. Maggie’s Farm has seven adult-use and medical dispensaries and cultivates the vast majority of their flower on outdoor farms. All Maggie’s Farm products are sun-grown from seed in soil that is 100% custom-mixed onsite as well as spring-watered, slow-cured and hand-trimmed. Maggie’s Farm does not use any synthetic pesticides or growth hormones in its cultivation. In addition, for the past eight years, Maggie’s Farm has recently obtained Clean Green Certified®, a designation certifying organic standards and testing that mirrors the USDA organic certification. Maggie’s Farm was the first cultivator in Colorado to earn the Clean Green certification.

We spoke with Bill Conkling, Founder and CEO of Maggie’s Farm to learn more about the benefits of outdoor growing, localism and their Clean Green certification. Bill started Maggie’s Farm in 2010 after growing up on cattle ranches and farms in Colorado.

Aaron Green: Bill, thanks for taking the time today. Tell me a bit about how you got involved in the cannabis industry.

Bill Conkling: I am a native of southern Colorado. I was a medical caregiver back in the early days of legalization, and I saw an opportunity to vertically align after my first legal crop in 2010. I opened up the store in 2011. I’ve been a lifelong proponent of medical, recreational and adult use of marijuana.

I come from a background of farmers and I had worked on cattle ranches and farms throughout childhood. As soon as I graduated from college, I went back to work on a large cattle ranch in the four corners area [of southern Colorado]. That’s where I started to incorporate my indoor cultivation experience and skills with outdoor.

Aaron: What trends are you following in the cannabis industry?

Bill: I was one of the first medical operators to support legalization, so I have certainly followed legalization trends. I’ve looked at some other states in our region in terms of growth and legalization.

Bill Conkling, Founder and CEO of Maggie’s Farm

We’re trying to stay a regional supplier and producer so that we are locally grown. We believe the southwest of Colorado is optimal for outdoor cannabis cultivation.

At Maggie’s Farm, we have followed an organic trend from the beginning and I think that’s becoming more of a trend now. We recently received Clean Green certification to that effect. Our goal is to try to provide the healthiest product at a good value to the market.

I believe that all of the products that are made in the cannabis world come from the flower. Downstream products are only as good as their ingredients. It all starts with the flower. So, we focus on producing a clean, top-shelf quality flower that is produced outdoors.

Aaron: How do you define local?

Bill: Local is staying in the climate that is optimal with the least amount of carbon footprint to the earth. That also means trying to operate so that we’re not moving a lot of product across long distances.

We’re trying to set up farms that are in optimal climates. There is a two or three-state region that I believe is the optimal climate for outdoor marijuana cultivation in our country.

Aaron: What states are those specifically?

Bill: I think Colorado and New Mexico, primarily.

Aaron: What geographies is Maggie’s farm currently in?

Bill: We’re in southern Colorado. We don’t go into the plains of Colorado.

Aaron: So Colorado state only right now?

Bill: Yes. The wet mountain range is one of the mountain ranges that we are in. I’ve also cultivated in the La Plata mountain range.

Aaron: What specifically is it about that region that makes it conducive to cannabis growing?

Bill: I think if you get the right elevation and the right microclimates within those elevations, and you have the number of sunny days that Colorado offers in those areas – the intensity of the sunlight, and the cool nights – all those things are factors that coincide in these areas that we like to cultivate in.

Aaron: We’ve been talking about outdoor growth. Does Maggie’s do any indoor?

Bill: No. We’re essentially an outdoor farm. We do a little bit of breeding and we’ve got starter houses, greenhouses and hoop houses for that purpose. We’ve got one greenhouse that we use for some wholesale, but we are primarily outdoors.

Aaron: How do you go about selecting the genetics or evolving the genetics to meet your local environment, given that you’re growing outdoors?

Bill: A lot of it is honestly through testing and experimentation, historically. You just cultivate and harvest and see how the genetics performed, you know? You test, you take test inputs, you take customer reviews, and blind test results from the team and from the customers and you consider all those facts.

Aaron: Do you produce and use your own seeds or are you purchasing those?

Bill: We have done both. I think I’ve probably created somewhere north of 800 different strains at this point. So, we’ve got a huge seed bank. We do also buy from vendors and experiment with some of those genetics as well.

Aaron: Do you market your seeds in Colorado?“I don’t think that you can get anywhere near the terpene value indoors that you can outdoors.”

Bill: We do not.

Aaron: How did you settle on outdoor-only as the strategy for Maggie’s?

Bill: I believe outdoor is a premium flower. I think it has less impact on the earth. I think that there is a lot less pest mitigation than there is indoors, which makes it a healthier, cleaner product. You don’t have to mitigate the concentration of pests that you get in temperate climates of stagnant corners of greenhouses and buildings that you cultivate indoors. Therefore, you never get into the situations as often or as intensely, where you might have to really work hard at mitigating your pests. You can use the natural predator insects you can introduce and oftentimes they survive and they create their own climates and it’s a more natural, healthier product.

I don’t think that you can get anywhere near the terpene value indoors that you can outdoors. You just don’t have the value of the sun, which nothing compares to. You can hold up as many high wattage bulbs as you want and you don’t even pale to the sun and the effect that the sun has on the flower.

Aaron: What are some of the challenges of growing outdoors that you see frequently?

Bill: You have to be nimble. You can’t rely completely on a schedule. You’ve got to be able to shift around in your planting days and your harvest dates.

You’ve obviously got to be on your toes all the time for weather changes. Higher humidity years can tend to bring more insects or pests. Some years you’ve got higher winds than other years. This year, we had a snowstorm on September 9, which left nine inches of heavy wet snow on one of our farms. So, you’ve got to be nimble, very proactive and ready for those kinds of weather events that happen in very short notice.

Aaron: We mentioned Clean Green Certified® briefly. Can you explain more about the Clean Green certification and why that’s an important thing for you at Maggie’s?

Bill: The choice to become Clean Green Certified® was really an effort to validate the organic process that we have. We vetted out what we believe was and still is the premier, organic criteria certification endorsement in the market for cannabis. To this day, they really do an ethical, vetting-out process whereby if you fail the parts of any of the soils that are sent to federal-licensed labs, you do not get your endorsement. The owner of Clean Green also had a mother company that was an endorser of other agricultural products such as coffee, wheat and dairy.

Aaron: How would you compare Clean Green Certified® to USDA Organic?

Bill: Identical. When the federal government legalizes, we are poised to automatically convert to a USDA Organic certification and endorsement. The processes the founder and owner of Clean Green uses to test cannabis is the same process used to test other agricultural industries. For plants, he takes random samples of soils throughout a cultivation field and sends them to a federal-licensed lab where they test for impurities.

Aaron: Did you decide to get your Clean Green certification due to pulling from the market, or is this more something you decided to do internally as Maggie’s Farm?

Bill: I decided to do this internally. I wanted to be recognized for all of our organic efforts and I wanted to let people know that we have a safe product that doesn’t have synthetics in it. Even to this day, a lot of people in Colorado unlike the coastal states like maybe California are still pretty unaware of a Clean Green certification or even the fact that there is an organic process for cannabis or marijuana. So, it’s really just to let our customers know that there is value in a safe, healthy choice for them.

Aaron: What kind of products do you create at Maggie’s farm?

Bill: We grow flower. We are also a big producer of a very high-quality pre-roll. We are developing promoted products as well.

Aaron: Do you do fresh frozen?

Bill: We do some, yes.

Aaron: Are you selling direct to the dispensary or to manufacturers?

Bill: We finally had produced some excess. So, we started wholesaling flower this year and lots of high-quality shake for concentrates to concentrate makers. Our customer is typically a little more of a mature customer. I don’t want to say necessarily older, but I think we probably do hit a little bit of a higher, more experienced, health-conscious, connoisseur customer.

Aaron: Can you give me an idea of some of the regulatory challenges in Colorado that you’ve faced in the past or are facing today?

Bill: The perpetual change of regulation has been a challenge. Being a competent operator in cannabis means getting used to the change and having the resources to be nimble with compliance. We haven’t had common problems such as metals, mold or mildew issues. However, we have had some hardware issues, which required us to change cameras along with other technical intricacies.

Aaron: How many acres do you have?

Bill: We have about 30 acres of secured premise cultivation.

Aaron: Is that all managed in-house or sublet?

Bill: It’s all managed and operated exclusively by Maggie’s Farm.

Aaron: What’s next for Maggie’s Farm? What are you excited about?

Bill:  We want to continue to put a higher scale of a very healthy, quality, value flower out there and to be able to offer that to more states initially states that are within our region and eventually states across the US. Also, we will continue to do our best to meet the growing demand for healthier choices in general.

Aaron: Lastly, what are you personally interested in learning more about?

Bill: How we can continue to be as earth-conscious as we can be? How we can continue to look for ways to give back to our communities? How we can continue to operate as a view of made in the USA and to try to just support local regional and national products and vendors? Just how to be more aware and always look for opportunities for self-improvement.

Aaron: That concludes the interview, thank you Bill!

Flower-Side Chats Part 1: A Q&A with Sam Ghods, CEO of Connected

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Connected is a vertically-integrated cannabis company based out of Sacramento, CA and one of the most sought-after brands in California and Arizona. Having formed as a legacy operation in 2009, Connected has created a cult-like following over more than a decade in business. According to BDS Analytics, Connected Cannabis and their acquired brand Alien Labs now boasts the highest wholesale flower price in any major legal market – their average indoor flower wholesale price is 2x the CA average – yet also has the highest flower retail revenue.

We spoke with Sam Ghods, CEO of Connected to learn more about his transition from tech to cannabis, how Connected thinks about product and his vision for future growth. Sam joined Connected in 2018 after getting to know the founders. Prior to Connected, Sam was a co-founder at Box where he stayed on for 3 years after their successful IPO.

Aaron Green: How did you get involved in the cannabis industry?

Sam Ghods: I originally came from the tech industry. I co-founded Box, a cloud sharing and storage company, in the mid 2000s with three other friends. We grew that from the four of us to eventually a multi-billion-dollar public offering in 2015. I stayed on a few more years after that until I took some time off trying to decide what I wanted to do next. I looked at a number of different industries and companies, but personally I always had a real passion for artisan and craft consumer goods. It’s a really big hobby of mine. Whether it’s going to Napa or learning about different kinds of premium consumer goods, I really had a deep love and never knew cannabis could be like that.

When I first met Caleb, the co-founder of Connected, he instantly got my attention by telling me that they had been selling out of their product in the volume of millions of dollars a year at more than two times what everybody else was selling for. That really piqued my interest because creating a product that has that level of consumer passion and demand is maybe the single hardest thing about building a consumer goods business. For them to have been so successful in what was a very difficult and gray market to operate in at the time – this was mid 2018 that I was speaking with him and he had been building this company since 2009 – is a really big challenge, and really impressive.

Sam Ghods, CEO of Connected

So, I started spending time with Caleb and the Connected team and learned a lot about the business. Everything I learned got me more interested and more excited. The way that they thought about the product, the way they treated it was with a reverence and level of sophistication I had no idea was possible.

I was so excited to just learn about the space. I mean, honestly, it feels like the internet in the 90’s- The sheer possibility and excitement. The only difference here is that the market already has existed for 100 years plus: the gray and underground markets for this product are actually phenomenally mature. And now we’re lifting up billions of dollars in commerce that’s already occurring and attempting to legalize all of it in one fell swoop, which creates such an interesting set of challenges.

I first got involved as an advisor on fundraising and strategy. And then a few months later, they were looking for a CEO and I joined full time as CEO in September 2018.

Aaron: What trends in the industry are you focused on?

Sam: It may seem basic, but I think product quality in the broader cannabis markets nationally and internationally is really underrated. Because of the extreme weight of the regulatory frameworks in so many different markets, it’s resulting in a lot of product being grown and sold just because it can be by the operators that are doing it. In many markets, they count the number of producers by the handful, instead of being measured in hundreds or thousands like in California or Oregon. And in that kind of environment, you’re not really having competition, and you’re not really able to see the quality that has existed in this category for years and years and years.

That’s one of the things that really sets us apart – the quality is first above all else, as well as the innovation and time that has gone into it, and not many existing brands in the legal market can say that. With some of the “premium” brands on the market, it would be comparable to just jumping into the wine industry one day and thinking that you can become a premium brand, without having any knowledge of the history of the product or the industry itself. At Connected, we have a team that’s been doing this for over a decade. We did a back of the envelope calculation: there’s over one thousand lifetime harvests between our team. We’ve also brought in specialists from Big Ag and other industries to complement that experience.

Cannabis is a very, very difficult plant to grow at a very high level. It’s much more like high-end wine or spirits than other fruit or produce. I think in the cannabis community, that’s extremely acknowledged, and appreciation for that is the reason we get by with the highest prices in the legal market. I think in the broader investor and financial community, this point hasn’t really hit home, because the limited license markets aren’t mature enough, and there isn’t enough competition in many of them.

Our focus is continuing to make the best product we can, which has fed and developed our brands [Connected and Alien Labs] into what they are today. That is our number one focus, and we think it’s pretty unique to the space of not just cultivating a great quality product, but also as far as breeding, pushing the bar higher and higher on what can be done with the genetics of the plant. 

Aaron: How do you think about choosing testing labs?

Sam: So, the number one criterion is responsibility and compliance. We must be completely confident that they’re testing accurately, safely and exactly to the specifications of the state. Then from there, it is really cultivating about a partnership. There’s a lot of nuance in the relationship with a testing lab. We note things like: Are they responsive? Are they sensitive to our needs in terms of either timelines or requirements we have? It does come down to timelines and costs to a certain extent, like who’s able to deliver the best service for the best cost, but it really is a partnership where you’re working together to deliver a great product. Reliability and consistency are big pieces as well.

Aaron: Industry estimates for illicit market activities are something like 60% of the California market. From your perspective, how do we fix that?

Sam: I think it probably comes down to funding for the efforts to discontinue those activities and opening up the barrier to entry, incentivizing “illegal” operators to make the investment in the cross-over. I think the most successful attempts to tamp it down was when there were initiatives that were well-orchestrated and well-funded, allowing for legacy growers to actually cross over to the “legal” industry. You can’t launch an industry with such an extreme amount of regulation, set a miles-high barrier to entry, and then penalize legacy growers for continuing their business as-is. If the illicit market continues to be fueled by rejection, you’re not going to achieve the tax revenue that you’re expecting to see, that we all want to see. There needs to be an attitude that every dollar put into transitioning illicit markets into regulated markets is returned many times over in tax revenue to the state’s citizens.

Aaron: So, I understand you sell wholesale. Do you sell direct to consumer?“Once they hit the shelves, we blow people away again, beyond their expectations of what they had before.”

Sam: We own and operate three retail stores, so we do sell direct to our consumers, but at this point the majority of our product is sold through third party dispensaries.

Aaron: Do you make fresh frozen?

Sam: We do. On the cultivation side we have indoor, mixed light and outdoor. We fresh freeze a portion of our outdoor harvest every year, and then we use that fresh frozen for our live resin products, for example, our recent live resin cartridge. It creates a vape experience really unlike any other because we are using our regular market-ready flower, but instead we’re taking that flower and actually extracting, not just using the distillate and mixing a batch of terpenes with it. We extract the entire plant’s content across the board, from cannabinoids to terpenoids and everything in between, and then you have our live resin cartridges.

Aaron: How do you think about brand identity and leveraging the brand to command higher prices?

Sam: The cycle we’ve effectively created is that every time we do a release of a new strain or a new batch or harvest, the quality is generally going up. That quality is released under our brands, and then the customer is able to associate that increase in quality and reputation with those brands. Then for our next launch, we have an even bigger platform to talk about the products and to ship and distribute and sell the products. Once they hit the shelves, we blow people away again, beyond their expectations of what they had before. That continuous cycle keeps fortifying the brand and fortifying the product. From our perspective the brand is built 100% on the quality of the product. The product will always be our highest priority and the brand will come downstream from that. 

Aaron: Tell me about Alien Labs.

Sam: Alien Labs was an acquisition. It was a company that had built their brand really successfully in the gray market through 2017 and Prop 215 in California and had an incredible level of quality, a really loyal and dedicated fan base, not to mention a tremendous Instagram presence and following, which is where 98% of cannabis marketing happens today. We really loved the spirit of what the founders were bringing to the table. In 2018, we decided basically to join forces with them and bring them on board, creating a partnership where they leverage our infrastructure and the systems and processes we’ve built, but still keep their way of cultivation and their product vision. To this day, Ted Lidie, one of the founders, continues as the lead brand director for Alien Labs.

Aaron: In what geographies do you currently operate?

Sam: Our primary offices and facilities are based out of Sacramento, California, but we have facilities throughout the state. Last year, for the first time we launched operations in a new state, Arizona. As you may know, you’re not allowed to take cannabis products across state lines at all, so if you want consistent product in multiple markets you really have no choice but to rebuild your entire infrastructure in each state you want to open up.

There are many brands that are expanding and launching in more markets more quickly, but they’re doing so by taking product that’s already existing and putting their brand name on it. That is something we’ve decided strategically that we will not do. We’ve spent years building a high level of trust with our customers, so we’re only going to put our brand name on products that are our genetics, our cultivation, our style, our quality of product. When we launched in Arizona, we did it with a facility that we leased and took over and now operate with our staff. We’re replicating the same exact product that you can get in California in Arizona, which is really exciting.

We launched just this past November, which has been incredibly successful. Our dispensary partner Harvest saw lines of dozens of people out the door.“We consider ourselves a flower company first and foremost, so for us, that was a very calculated strategic move.”

Aaron: Any new geographies on the horizon that you can talk about?

Sam: We’re constantly evaluating new opportunities. I don’t have anything particularly specific to announce right now, but I will say we look for states where we believe there’s a competitive environment where the product quality is going to really stand out and be appreciated.

Aaron: Do you notice any differences in consumer trends between California and Arizona that stand out?

Sam: Not too many yet. We don’t have a retail location in Arizona, so we don’t have as much direct contact. However, we have heard consistently that the Connected customer demographics – as you would imagine most interested in our product – are those looking for something special, unique, different and have a really superior quality to everything else out there. We ended up launching in Arizona with the highest price point for flower in the state, and we say that’s just the beginning. The market is still so young and immature, both nationally and internationally, that this category is going to develop into one that’s really taste-driven.

Aaron: What’s next in California?

Sam: Continued growth and product development. We want to keep blowing away our customers with more and more incredible products, different product types and categories. For example, the cartridges were a really big launch for us because we don’t really consider ourselves a vape company. We consider ourselves a flower company first and foremost, so for us, that was a very calculated strategic move. We were only going to launch the product if we could fully replicate what the consumer gets from the flower experience. We are very unlikely to ever release a distillate pen, for example.

Aaron: What are you personally interested in learning more about?

Sam: We, as a society, really don’t know very much about the cannabis plant. Pretty much all meaningful research around cannabis stopped in the early 1900’s with prohibition. In the meantime, we’ve performed millions of dollars of studies and research on almost every other plant that we grow commercially. We understand these plants extraordinarily well. Cannabis science is stuck back in agriculture of early 1900s. The most interesting conversations I have are around how the plant works, how it doesn’t work and the ways in which it is so different from all other plants with which we are familiar. Our head of cultivation comes from Driscolls, the largest berry company in the world, and even he is frequently surprised by the way the cannabis plant reacts to things that are commonly understood in other plants. So, the way the actual plant responds to different environments is truly fascinating and something I think we’ll be learning about for decades and decades to come.

Aaron: Okay, great. That concludes the interview. Thank you, Sam!